Details

Balance sheets are the financial statement that summarize an organization’s assets, liabilities and owner equity. The balance sheet must balance the assets with the value of the liabilities plus the shareholder’s equity as expressed in this formula:

Assets = Liabilities + Shareholder Equity

Definitions:

Assets- things used by a company such as equipment, property

Liabilities – obligations/debts

Owner’s equity – net worth of investor

The balance sheet, along with an income statement and a cash flow statement are documents that are available for shareholders and potential investors. They are used by investors to decide if they should invest in a company.

Components of a Balance Sheet

Assets = Liabilities + Shareholders’ Equity

Assets

Assets are divided in to two categories, current assets and non-current assets and then further broken down in to more specific categories.

Current Assets

Current Assets are divided as follows:

Cash and cash equivalents – Physical currency and assets that can easily be converted in to cash, such as short government backed bonds.

Inventories – Raw materials used in methods of production as well as work-in-process goods (i.e almost completely finished good). It also takes into account completely finished goods that have yet to be sold.

Accounts receivable – Money owed from clients.

Prepaid expenses – Payments made in advance for supplies or services that have not yet been received such as insurance or utilities.

Non-Current Assets

Non Current Assets are divided as follows:

Property, plant and equipment – All assets that are not ‘for sale’ to clients. For example, a cash register used by a restaurant or the actual building of a warehouse.

Investment property – A property that the business holds in hopes of generating a profit internally as opposed to selling products to clients.

Intangible assets – Assets that “cannot be seen, touched, or physically measured”
– for example a brand name, such as “McDonald’s” which attracts clients, or a company’s goodwill (the charity they run for example).

Financial assets – All other financial assets not accounted for in previous categories, such as stock or short term investments.

Biological assets – Take Living plants or animals, the maker of apple juice could own substantial apple orchards.

Liabilities

The liabilities portion of the balance sheet is divided as follows:

Accounts payable – Amount that the company owes to suppliers that has not been paid for.

Provisions for warranties or court decisions – Money set aside to pay for losses that are anticipated at some point in the future, such as lawsuits.

Financial liabilities – Amount of money owed to bondholders.

Current Tax – Amount of tax currently owed.

Deferred tax – Liability for taxes owed which is postponed to future periods.

Unearned revenue for services paid but not yet received – Money owed by customers to the company.

Shareholder’s Equity

Shareholder’s equity refers to the assets owned by shareholders after all liabilities are accounted for.

Balance Sheet Example

Below is the 2015 Apple Corp balance sheet.
Note how the formula of Assets = Liabilities + Shareholder’s Equity is applicable.
Keep in mind that actual balance sheets reported by corporations may contain more complex breakdowns should they have more complex dealings.

Getting Balance Sheets On HowTheMarketWorks

You can find the balance sheets of every publicly traded company in the United States using HowTheMarketWorks’ Quotes tool.

Just open the quotes page, and search for the symbol you want to find (for example, AAPL). Next, click “Financials” on the menu just above the search bar:

The balance sheet will load below (you can also use this page to find the income statements). You can compare the most recent balance sheet with several of the previous years to get a sense of what direction the company has been heading.

Conclusion

A company’s balance sheet provides investors the ability to compare the current balance sheet to previous editions. They can see when a company is improving current assets relative to those reported a year ago.
Often companies display this period’s balance sheet line items along site prior year’s balance sheets. The income statement is the first piece of information many investors look at when they are thinking about investing in a company.

Pop Quiz!

If reading this article was an Assignment, get all 5 of these questions right to get credit!

Click "Next Question" to start the quiz!

1 of 5) What does a Balance Sheet represent?

A. A company's total assets and liabilities on a certain date

B. The total revenue and expenses a company used to do business over a period of time

C. The total cash balance a company currently has in the bank

D. The list of a company's current executive board

2 of 5) Which of these items would NOT appear on a balance sheet?

A. Assets

B. Liabilities

C. Total revenue from the previous year

D. Shareholder's Equity

3 of 5) What do "Prepaid Expenses" count towards?

A. Current Assets

B. Non-Current Assets

C. Liabilities

D. It would not appear on the balance sheet

4 of 5) Use the Quotes tool to find the balance sheet for Apple (AAPL). What was their cash balance in September of 2015?

A. $21,120

B. $211,200

C. $21,120,000

D. $290,479

5 of 5) What was the combined Total Liabilities for Apple in September 2014?

A. $63,448,000

B. $80,610,000

C. $120,292,000

D. $171,124,000

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